Question

Question 1 [Note this question is from the Week 2 Tutorial] The Tesco case was discussed in the Week 2 Interactive Tutorial. Companies like Tesco gather a massive amount of data through different loyalty card programs. Typically, the shoppers fill out an application form in the shop and receive a plastic card and a key fob* in the mail that is scanned before they make a purchase. In this way, the companies gather massive amounts of data about their customers’ millions of purchases each week. From a company perspective, this is the sales data which plays an essential role in the accounting information system. Then, the data analysts of these companies analyse these sales data and turn it into useful information. Required: a) How can this information be used to get a competitive advantage? [3 Marks] b) What else can these companies accomplish from this collected data? [2 Marks] c) What are the risks associated with these types of loyalty cards? [2 Marks]

Answer 1

(a): This information can be used in a systematic and tangible manner to get competitive advantage. Tesco is a grocery and general merchandise retailer and the sales data that it has can be analyzed to gain a better understanding of its customers and their buying patterns and their needs. This will enable Tesco to stock those items and products that customers need and hence it will be in a better position to meet all needs and requirements of customers. It will also help Tesco to design and execute its marketing programs and events in a better manner, thus allowing it to reach its target customers in a more focused and aligned manner. Using the data Tesco can offer better products, relevant products and better services to customers. This will help in attracting more customers on a sustainable basis and hence will give Tesco a competitive advantage.

(b): Companies like Tesco can accomplish a lot of other things by using the collected data. The sales data can be used for the purpose of disruption as well as innovation. Sales data analysis will inform companies about the changes taking place and what needs to be changed within the company in order to stay relevant. This can enable companies to innovate and disrupt by identifying market changes quickly and then adopting to it. Sales data is also used to motivate employees. Employees, particularly sales employees, are given a quantifiable metric on the basis of sales data and hence they are able to work in a more efficient manner. Companies also use the data for the purpose of performance assessments of employees and devising new incentive plans for the employees. Companies also use the data to streamline their sales pipeline management as well.

(c): The foremost risk associated with these types of loyalty cards is that of risk of identity theft, data theft and fraud. Companies are required to have proper control systems in order to ensure that data of customers are safe and secure. This, however, cannot be fully guaranteed and hence is a big risk. Another risk is that a company will not be able to track the overall behavior of customers as the loyalty cards will help the company to track a customer only for purchases made at its store. Purchases made at other stores cannot be tracked and hence there is the risk of one-dimensional analysis of behaviors of customers.